A Performance Review System That Works For Everyone

By: James A. Cusumano, Ph.D.

Every year, many of us are involved in an annual performance review. It is that time of the year when the CEO will likely look back over the company’s performance for the previous year and ask, “How did we do? What should we be proud of? What have we as a team learned that can help us do even better in the future?”

In your thoughtful reminiscence, you might also ask, “What did each of our company team members do that is worthy of celebration and reward, and what have we learned that will help us support each other in future efforts toward individual, team, and corporate goals? How can we transition our company from good to great?”

Performance reviews are a controversial subject. Some executives feel they are useless, contentious, and even deleterious. In most companies, it is a frightening experience—especially if either one of the participants feels there is criticism that should be presented and discussed. That need not be the case if conducted in an appropriate manner. More importantly: without honest, well-designed reviews and constructive discussion, it is challenging, perhaps not even possible, to build a truly successful company for the long term.

The key word here is “successful.” For me, the best definition of success was formulated many years ago by the motivational author and speaker Earl Nightingale, who said, “Success is the progressive realization of a worthy goal or ideal to which you are personally committed.” So it follows if there are employees who do not understand and commit to the corporate goals and strategy in an organization, and subsequently cannot set their goals in a way that supports those of the company, neither can be successful.

At Catalytica, Inc., the U.S. public company I co-founded and helped lead for many years, we developed a performance review system that was valuable to both employees and the company. It was not a fearful process, and it was an important contributor to our success as a company. Although the questionnaire below applies especially to supervisors, managers, and executives (particularly questions 1, 9 and 14-17), the questions can be easily eliminated where appropriate. Its prime purpose is to align all employee goals with those of the company, to identify effective means to further develop employees, and to create a professional life for all employees and a successful organization in achieving the latter two.

Furthermore, it is designed so that concerns over aspects of the employee’s performance are inevitably raised by the employee and not the supervisor. Then, the approach is not to punish but to discover what has been learned and what can help the employee in going forward.

Last Year’s Results; Next Year’s Plan

Over the years, we developed a questionnaire that is completed by the employee, to the best of his or her ability, and with help from the supervisor where necessary. The questionnaire should be completed and provided to the supervisor at least one week before the review session. The supervisor is responsible for facilitating the performance review. This means that he or she should be trained in effective communication skills—especially listening skills—to conduct the review successfully.

It requires considerable time and effort to complete this questionnaire the first time, but subsequent reviews are much easier. Filling it out properly also requires that the company management be open and transparent with employees concerning relevant financial and other strategic data. The employee must clearly understand his or her specific expected role and contribution. Therefore, clarity of and commitment to the overall company strategy, goals, and tactics are very important.

Equally essential is that the employee and supervisor both understand and agree to the employee’s measurable goals in contributing to the corporate strategy and achieving the annual plan. The questionnaire is discussed and modified, as mutually considered necessary with the supervisor, during or immediately after the review. There is significant effort required by both employee and supervisor, but the benefits far outweigh this effort.

Team Performance Review and Discussion

1. What were the Sales, Pre-tax Profit, EBITDA (or Earnings before interest taxes, depreciation and amortization), Number of Employees (End of Year), Sales Due to Employee’s Team, based on last year’s plan, actual results, and this year’s plan?

2. List the top two to three significant events (both exciting and challenging) that happened during 2012 that had an impact on my performance.

3. If I could relive the past year, what actions would I take differently?

4. What did I learn in the past year that I believe has future value to me and to the company?

5. What do I believe are the current external threats to our company and to our industry?

6. What is my role, if any, in helping our company to address these threats?

7. What new external and internal opportunities do I see for our company?

8. What are the one to three most significant issues or dilemmas I currently face within the context of my job?

9. What do I understand are the essential elements of our current business strategy for this year and how do they apply to my position?

10. What are the two or three things that must happen to make our strategy work in 2013? How does this apply to my area of operation?

11. What do I understand are the company goals for this year?

12. What are my team and personal corporate goals for this year?

13. How do I believe you could help me in this year to achieve these goals?

14. Who are our customers and what good news are we delivering to them?

15. Who are our competitors and what competitive advantage are we striving for?

16. What is the company doing, and what specifically am I doing to help achieve this advantage?

17. As I review our company’s strategic plan for the next one to three years, and I study the area for which I am responsible, what changes do I foresee in (a) our products and services, (b) our market scope, (c) the general size and profitability of our markets (increase or decrease)?

18. How will I spend my time this year in order to be consistent with my priorities?

19. What feedback do you (my supervisor) to give me so that I can help you become an even more successful employee? In particular, what did I do this past year that facilitated your job, and what did I do that made it more challenging for you.

20. What input can you (my supervisor) give me to help me grow as a more successful manager and leader?

Providing answers to these twenty questions and having a subsequent constructive conversation requires a corporate culture that is open and respectful of input from both the employee and the supervisor who must see themselves and each other as important part of a team. A company that develops such a culture has a significant competitive advantage, and is almost always a market leader.

Some might think that this approach requires too much time, is too transparent, and perhaps a bit too progressive. True, it does require a considerable amount of quality time. And yes, it is quite transparent and surely can be considered progressive, when compared to the norm. But is your goal, or your company’s goal, to be the norm? Furthermore, this technique has proven successful in my personal experience with a number of businesses I have been intimately involved in over the last three decades.

About the Author(s)

James A. Cusumano, Ph.D., is the author of BALANCE: The Business-Life Connection. After a stint with Exxon as director of catalytic R&D, he cofounded Catalytica, Inc., a public company based in Silicon Valley with business divisions in clean energy and pharmaceuticals. Catalytica grew to nearly 2,000 people and a $1 billion market value before being sold at a premium. Cusumano also founded Chateau Wally Films and produced the film What Matters Most, released in over fifty countries. Cusumano is the author of numerous technical and business publications, including Cosmic Consciousness—A Journey to Well-being, Happiness, and Success, and coauthor of Freedom from Mid-East Oil.

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